Will governments crack down on DEXs someday?

[shinratensei_]

Addressing the "privacy" issue on DEXs, should be a piece of cake. Especially when we now have ZKPs (Zero Knowledge Proofs) capabilities both on smart contracts and on the main Blockchain itself. There's nothing stopping developers from creating a truly-decentralized DEX with privacy in mind. It's just that there's not much interest in this. The general public is satisfied with existing solutions. They prefer convenience above all else. It's why centralized exchanges are the dominant force of the market.

Developers can actually make everything private, but do new crypto users care about their privacy? This is where the problem lies, and that’s the reason why centralized exchanges are everywhere, and the government will keep controlling them which might result to controlling each and every user of crypto since so many crypto users prefer the use of CEX instead prioritizing privacy by using the DEX.

The problem is always on the legal side, the DEX have people working behind it and many of them don't want to get entangled into problem especially matter of anti money laundering.

They could easily route every swap through ZK shielding but they will need a lot of money to get the best lawyer to defend them in court.
Unless there is a regulation that could make it clear, separation of responsibility between DEX developers and the user who might intentionally do unlawful things, the privacy issue won't be addressed.

[M47AK16]

Addressing the "privacy" issue on DEXs, should be a piece of cake. Especially when we now have ZKPs (Zero Knowledge Proofs) capabilities both on smart contracts and on the main Blockchain itself. There's nothing stopping developers from creating a truly-decentralized DEX with privacy in mind. It's just that there's not much interest in this. The general public is satisfied with existing solutions. They prefer convenience above all else. It's why centralized exchanges are the dominant force of the market.

Developers can actually make everything private, but do new crypto users care about their privacy? This is where the problem lies, and that’s the reason why centralized exchanges are everywhere, and the government will keep controlling them which might result to controlling each and every user of crypto since so many crypto users prefer the use of CEX instead prioritizing privacy by using the DEX.

The problem is always on the legal side, the DEX have people working behind it and many of them don't want to get entangled into problem especially matter of anti money laundering.

They could easily route every swap through ZK shielding but they will need a lot of money to get the best lawyer to defend them in court.
Unless there is a regulation that could make it clear, separation of responsibility between DEX developers and the user who might intentionally do unlawful things, the privacy issue won't be addressed.

That's the thing, if you build a DEX, you should not be responsible for it, or in charge of it. Remember, this is called a DEX, as in DECENTRALIZED exchange. Meaning that if someone can stop it, or do something about it, then it is not really decentralized.

So if they are not decentralized, that's bad, if they are decentralized and governments wants to prevent, they can't, because there is no ownership. So either way is bad for the creator of it, you either have no access and you will be harassed by the government, or you do have access and you are a liar.

[Abiky]

At least leave the DEXs. They have already messed up mixers, going behind DEXs will just kill our freedom of exchange and privacy.
P2P trading is risky which is why DEX is the only no KYC option if we want to trade without involving any middleman.
The governments are just against this though and will possible kill every option that lets users to trade without getting tracked.

I would've wished governments let DEXs be. But we all know they'll never be satisfied until they keep crypto under their grasp. It's all about power/control. This will be a never-ending game between crypto and governments alike. Like a cat and mouse game. Governments will try to crackdown on something, only for developers to come up with a solution. Crypto is decentralized and censorship-resistant (some of them), so it will be impossible to try to stop it.

Perhaps, governments will manage to force DEXs to comply with regulations. Only those that aren't truly-decentralized. But the rest? Good luck with that. Same with mixers. Governments were able to crack down centralized mixers, but they were unable to succeed with non-custodial ones. Let's just hope the only true DEXs we have left, don't get compromised in the long run. Or it will be game over for good. We'll see what happens...

[N9_Ninja]

I think regulatory pressure on DEXs will definitely increase, but shutting down a truly decentralized protocol is much harder than blocking its website. Governments can target developers, frontends, stablecoin issuers and fiat on-ramps, while the smart contracts may keep running. We’ll probably see more geo-blocking and optional compliance tools, not the complete disappearance of DEX trading.

[Abiky]

I think regulatory pressure on DEXs will definitely increase, but shutting down a truly decentralized protocol is much harder than blocking its website. Governments can target developers, frontends, stablecoin issuers and fiat on-ramps, while the smart contracts may keep running. We’ll probably see more geo-blocking and optional compliance tools, not the complete disappearance of DEX trading.

Geo-blocking and KYC compliance greatly defeats crypto's intended purpose. At least, we know truly-decentralized exchanges won't implement such measures. They're simply outside the governments' reach. Because of DEXs nature, governments will hunt them down for good.

At this point, it's impossible for DEXs to completely disappear. Just like you've said. CEXs and hybrid exchanges will continue to dominate the market, while truly-decentralized exchanges will remain the minority. As long as we have a choice, nothing else matters.

[shinratensei_]

That's the thing, if you build a DEX, you should not be responsible for it, or in charge of it. Remember, this is called a DEX, as in DECENTRALIZED exchange. Meaning that if someone can stop it, or do something about it, then it is not really decentralized.

Wholly agree, the misuse of the tool shouldn't be blamed on the creator because they don't have intention to misuse and not the actor.
It's a good privacy feature that could prevent wrench attack but we're not getting any of them implemented because the AML complication which many developers are so afraid about because it's no joke.

[Orpichukwu]

Wholly agree, the misuse of the tool shouldn't be blamed on the creator because they don't have intention to misuse and not the actor.

Tell that to the government. People are building for the sake of making things easy for users, while bad actors are out there thinking of ways to take advantage of the tools. Whatever the government did not like, they accuse and lay blame on it, but they forget that there is no system out there, including fiat and local banking sectors, which is not used by bad actors in one way or the other, but you will not see them condemning their own.

[Mpamaegbu]

Whatever the government did not like, they accuse and lay blame on it, but they forget that there is no system out there, including fiat and local banking sectors, which is not used by bad actors in one way or the other, but you will not see them condemning their own.

They give a dog a bad name so they can convincingly hang it. That's the government of the world for you. Lots of crimes went on with fiat long before the idea of a thing Iike crypto was conceived. Yet they act like crypto should be demonized.

As for cracking down on Dexs, if government couldn't restrict or exterminate cryptos more than a decade ago, I doubt they can now. So, I'm not even perturbed by whatever efforts or attitude they put up now in their attempt to discourage it.

[Abiky]

They give a dog a bad name so they can convincingly hang it. That's the government of the world for you. Lots of crimes went on with fiat long before the idea of a thing Iike crypto was conceived. Yet they act like crypto should be demonized.

As for cracking down on Dexs, if government couldn't restrict or exterminate cryptos more than a decade ago, I doubt they can now. So, I'm not even perturbed by whatever efforts or attitude they put up now in their attempt to discourage it.

Governments are corrupt, hungry for power and control. They will do anything in their power to prevent people from obtaining true freedom and privacy. Bitcoin, although regulated and accepted by many countries, it's still banks' and governments' #1 enemy. They will keep tightening regulations to a point where you can't do almost anything with it. Governments hunted down mixers, then they'll go after DEXs and privacy coins.

You're right that it's too late to stop this. But it's never too late to slow down the growth of the industry. With a vast number of restrictions, Fiat will continue to reign supreme over crypto. People living in countries where crypto is "illegal" will simply use it "in the shadows". Perhaps, truly-decentralized exchanges will end up hiding in the shadows. At least, they'll survive.

[goldkingcoiner]

The government would need to become a total dictatorship and even then it would not be enough. The decentralized aspect of DEXs makes them very government-proof. I do not want a third party having the ability to interfere directly in my private financial business. That is what a bank is basically. Centralized and completely loyal to an entity that is not you. That is not someone I want to leave my money with...



 

[Curious T]

For now, many more people use CEX than they use DEX, so the regulatory authorities don't pay much attention to DEX. If DEX were half as popular among crypto users as CEX, it would have been under heavy attack by now. If only a relatively small amount of transactions gets done with a decentralized exchange, then the government wouldn't mind. Most actual DEXs don't have a central authority, so that makes it difficult for the government to crack down, but they still have ways to restrict it even now. With the way things are going, I doubt decentralized exchanges will become more popular than it already is right now, but if it does, governments of various countries will find a way around it.

[Ucy]

How do you crack down on decentralized exchange with no single individual or group with unilateral control of the exchange.
Well, I believe a proper Dex should eventually be self-regulated by its community. Governments can  become part of the community and make proposals that do not violate the community ideals. I recommend proposals that the community won't be able to find fault in, such as having certain dex users use unique identifiers from privacy-preserving "kyc" or identity system to access their dex accounts and have limitless features like zero transfer limit.
We already discussed how the identity system can work or be built, but the basic idea is to create a system that no human or even bot can access or know the identity of its users, yet can be used for identity verification. This is what Dexes can allow without violating their own rule or principle on privacy. Privacy must not be violated because it's a right, and a legitimate one for that matter

[Johnlomape]

Cryptocurrency becomes more regulated. The more people use cryptocurrency the more regulated it becomes.

Cryptocurrency is already in the regulation mode and their are several countries where crypto is being regulated except your government has not created a strict laws concerning concerning crypto use. Countries like Japan, Korea, South Africa, Nigeria etc all have crypto laws which you need to honour that also concerns users taxation.

Cryptocurrency was created to be anonimity but now is a state contrall everywhere and no anonimity at all.
If cryptocurrency will become more popular in the future and many people will use it it will become more regulated and more people will use it.

Bitcoin was created decentralized but the government has already started to make this process impossible for crypto users.
In some of the strict countries that allow crypto usage, you will need to use your digital ID before sending out your crypto to another wallet, which has been making the liberty of using crypto severe and their is nothing we can do.

[New Judgement]

Tell that to the government. People are building for the sake of making things easy for users, while bad actors are out there thinking of ways to take advantage of the tools. Whatever the government did not like, they accuse and lay blame on it, but they forget that there is no system out there, including fiat and local banking sectors, which is not used by bad actors in one way or the other, but you will not see them condemning their own.

the government won’t ever come out to condemn their own centralized financial system because it’s benefiting them directly, and the system is built in a way that they can use it to fight their enemies and oppress their oppositions. They can only succeed in caging people that are not ready to be liberated from the shackles of the centralized system, with their propagandas. If the government come out today to make accusations against crypto, the knowledgeable people already know the game they are playing, which is the battle of controlling the people. You can’t deceive a man who knows the truth already. The people have right to self custody which should be respected.

[Abiky]

How do you crack down on decentralized exchange with no single individual or group with unilateral control of the exchange.
Well, I believe a proper Dex should eventually be self-regulated by its community. Governments can  become part of the community and make proposals that do not violate the community ideals. I recommend proposals that the community won't be able to find fault in, such as having certain dex users use unique identifiers from privacy-preserving "kyc" or identity system to access their dex accounts and have limitless features like zero transfer limit.
We already discussed how the identity system can work or be built, but the basic idea is to create a system that no human or even bot can access or know the identity of its users, yet can be used for identity verification. This is what Dexes can allow without violating their own rule or principle on privacy. Privacy must not be violated because it's a right, and a legitimate one for that matter

Governments can only crackdown on a "decentralized exchange" if it has an entity behind it. This can be either directly or indirectly. If it's the latter, the developer himself would have his ID known to the public, but without being able to have a say in the DEX's decisions or governance process. Like the Tornado Cash mixer, for example, which led to the arrest of its developer due to its publicly-known identity. If he would've stayed anonymous like Satoshi, such inconvenience would have been prevented in the first place. The same might happen with so-called "DEXs". Can you imagine the government holding the developer accountable if his identity is known to the public? Like forcing the developer to make his exchange KYC-compliant, or face the consequences?

A truly-decentralized and censorship-resistant DEX, would be built using decentralized infrastructure (alternative networks, decentralized domains, etc.) by an unknown (anonymous) developer. That's the dream. But unfortunately, the number of such exchanges is decreasing each day. You're right that privacy is a right. But if you're living in an authoritarian regime, good luck with that. Hopefully, the concept of a "DEX" doesn't get ruined by governments tightening regulations in the long run.

[Rengga Jati]

The most likely action that government will take is to tighten regulations regarding exchanges registered and allowed to operate in the country. Like in my country, all exchanges must be registered with the authorized institution there. They all need to have permits to be accepted and easily accessible.

However, DEXs are different. This will depend on the platform. However, because they are decentralized, I'm not sure the government will be able to control them, let alone crack them down. However, making transactions through DEXs more difficult is a possibility. This will likely be related to regional regulations in each country. But for global matters, this doesn't matter.

[pooya87]

However, DEXs are different. This will depend on the platform. However, because they are decentralized, I'm not sure the government will be able to control them, let alone crack them down.

That's only true in case of True Decentralization not the fake ones and definitely not the semi-decentralized stuff. There are cases where they call their platform DEX but it is actually centralized, I remember Binance had such a platform!

There are other cases which are more common where they have a semi-centralized DEX where your trades and all your communication needs to go through a centralized server and you have to pay a fee to that central authority. In this cases the authorities can easily crack down on that centralized server and the "company" behind it and enforce their restrictions or even go as far as shutting them down.

A true decentralized exchange is one where your communication and trades take place 100% peer-to-peer. That cannot be shut down just as no other P2P network can be shut down or cracked down on (bitcoin, tor, torrent, etc. are examples of such decentralized P2P networks).

[Alonso_]

It is very difficult to contal DEX and money that are in the DEX.
Many people use DEX for unlegal transactions or not to pay taxes.
That is why many states prefer to ban DEX than to contal DEX.

I think people have emphasized so much on DEX, the fact that governments doesn’t have control over DEX, doesn’t mean that the Government can’t ban DEX, they have the power to do so if they feel like they want to do such a thing, but I can’t see Government banning DEX because they’re also benefiting from DEX in one way or the other, is either legal or illegal.
 
Correction is very common in the World now, so Government would have to think twice before making any hasty decisions concerning the existence of DEX.

[abaeze]

It is very difficult to contal DEX and money that are in the DEX.
Many people use DEX for unlegal transactions or not to pay taxes.
That is why many states prefer to ban DEX than to contal DEX.

I think people have emphasized so much on DEX, the fact that governments doesn’t have control over DEX, doesn’t mean that the Government can’t ban DEX, they have the power to do so if they feel like they want to do such a thing, but I can’t see Government banning DEX because they’re also benefiting from DEX in one way or the other, is either legal or illegal.
 
Correction is very common in the World now, so Government would have to think twice before making any hasty decisions concerning the existence of DEX.

Everything will depend on the needs of the people. If the government forces the people, then it can do it, but if the government does not achieve the purpose for which it is done, then the government will face widespread criticism due to its activities.

Therefore, considering the positive aspects of DEX to keep the economy balanced in the current situation and in the future, it would not be right to ban it. However, it is true that it is difficult for the government to directly control DEX, but the government can impose strict control on the users and developers of DEX.Therefore, in my opinion, banning DEX by the government just in the name of fighting corruption would be a wrong and immature decision.

[Mayor of ogba]

I do not know if government has a plan to crack down decentralised exchanges in the future. Government always like to control anything they see as challenge or problem, and since people that built decentralized exchanges are public known that even make it easier for government to control decentralized exchanges. So if government wakes up one day and say decentralized exchanges are their problem, they can force decentralized exchanges to start accepting KYC which will give them to control they want.